Fertility
Thomas Malthus earned his title as the first economist in human history for forecasting that because the resources of the earth were finite an agency problem called the “Tragedy of the Commons” fated man to live on the margins of survival. The Tragedy of the Commons is that parents decide how many children to have based on the the private cost (or benefit) of raising children and not the greater social cost of adding another member to society. This led to overpopulation because while everyone desired fewer people, they were not willing to settle for fewer children themselves (“too much of you, just enough of me”).
Because we yield diminishing returns from natural resources, the finite resources of Earth limited population to mere subsitence. This limitation fated all humans to live on the margins of survival, for if we experience an increase in our standards of living (more food and resources) we squander it in the form of more children. You might ask, “why would we squander an increase in wealth on more children?” and the answer is that “if you don’t, surely someone else will.” Since you will return to your impoversed state of marginal survival in any case, it is worth it to try to return with another child if you like having children at all.
Shortly after Malthus died, the Industrial Revolution ushered an era of the highest levels of human consumption in our history; middle classes today live better than the Royalty of the Middle Ages. It would shock Malthus that as our real wealth increased, we do not have more but have substantially fewer children than we did before. Why did this happen?
The modern economy is different from the medieval economy in many ways, but most importantly because it is marked by social mobility because it offers returns to human capital. Is it true that the important difference between the modern economy and the pervious economy is that there is a quality of children, measured in human capital. There are investments we can make in our children to make them more or less wealthy… social mobility didn’t exist.
The decline in fertility in response to our newfound wealth tells us something critically important about parents: they are willing to sacrifice the quantity for the quality of their children. In other words, parents are altruistic toward their children, and a child’s welfare contributes to a parent’s happiness. Insofar as a child’s welfare is a function of how much they can consume, parents are happier to have fewer children consuming more than a lot of children who consume less. If you don’t believe this, realize that virtually anyone in a developed nation could certainly afford another child in the sense that they could afford to feed one more child (without reducing the parent’s consumption) but prefers not to because they would not be able to give that child enough nourishment, toys, education, and attention. In otherwords, they prefer the higher quality child.
So as we got wealthier, we have preferred to substitute the number of children for higher quality children. Yet, in most developed nations poor families have more children than wealthy families. Why is this?
• There are a few explanations. First is that poor and wealthy families may face different prices. Since there is typically geographic separation between classes, particularly between urban and rural areas, it could be the case that in rural areas where food and housing are cheaper, the cost of having another child is cheaper. If the price of children falls, the quantity should increase. This will be magnified if, as in many rural communities, children in rural families contribute productively to the family’s income at younger ages, effectively lower the price of children for poor, rural parents.
Second, it is also true that an increase in an individual’s wage rate increases the value of their time. Time spent with children is one of the largest costs that parents pay when they have more children, thus an increase in the wage rate may increase the cost of having more children as well. The parent may substitute in the direction of having more educated children as well.
Finally, even if the other effects don’t hold to be true, the parent may elect to have higher-quality, better educated children when his or her income rises, even if other prices remain constant. As a property of convex preferences, parents will optimize when they invest equally in all children (since we assume they are identical). Thus, when the parent invests more in the quality of children, they invest more in the quality of every child. Since this creates a budget constraint that is itself convex, not linear the decision to invest more in a child’s human capital requires that parents do the same for each child and effectively raises the price of children.
This convex budget constraint is important: The number of children affects the price of children. IF the price of children was constant, having one child fewer would save you the cost of his education. If the price of children increases, you would want to substitute toward having fewer children of greater quality. But there is also a second order effect: having higher quality children raises the cost of having children again, since you must improve the human capital of all your children. This further encourages you to reduce the number of children you have.
The revelation about preferences, that humans trade quality for quantity, seems to come in the face of evolutionary theory, which suggests that most species are interested only in maximizing the quantity of their offspring. Over time, the people with preferences that populate the earth become "us." This is why we like sex. But why do we worry about having too many children? (it's interesting to realize that aside from having children out of wedlock or at an age when it was dangerous to the mother, or when people were afraid their child wouldn't survive, there was never concern for having too many kids, or that kids might 'accidentally' result from sex. It is only now that we have to be concerned about how much time and resources we can give to each child to increase their happiness that we are worried about having too many children).
I have two thoughs on this: First, in some basic level, the quantity quality trade-off increseas survivorship, but this is surely a very basic level, a Malthusian level. Second, preferences about these trade-offs were unimportant for most of human history, so natural selection has not impacted our sentiments. This feels like a bad argument...
Because we yield diminishing returns from natural resources, the finite resources of Earth limited population to mere subsitence. This limitation fated all humans to live on the margins of survival, for if we experience an increase in our standards of living (more food and resources) we squander it in the form of more children. You might ask, “why would we squander an increase in wealth on more children?” and the answer is that “if you don’t, surely someone else will.” Since you will return to your impoversed state of marginal survival in any case, it is worth it to try to return with another child if you like having children at all.
Shortly after Malthus died, the Industrial Revolution ushered an era of the highest levels of human consumption in our history; middle classes today live better than the Royalty of the Middle Ages. It would shock Malthus that as our real wealth increased, we do not have more but have substantially fewer children than we did before. Why did this happen?
The modern economy is different from the medieval economy in many ways, but most importantly because it is marked by social mobility because it offers returns to human capital. Is it true that the important difference between the modern economy and the pervious economy is that there is a quality of children, measured in human capital. There are investments we can make in our children to make them more or less wealthy… social mobility didn’t exist.
The decline in fertility in response to our newfound wealth tells us something critically important about parents: they are willing to sacrifice the quantity for the quality of their children. In other words, parents are altruistic toward their children, and a child’s welfare contributes to a parent’s happiness. Insofar as a child’s welfare is a function of how much they can consume, parents are happier to have fewer children consuming more than a lot of children who consume less. If you don’t believe this, realize that virtually anyone in a developed nation could certainly afford another child in the sense that they could afford to feed one more child (without reducing the parent’s consumption) but prefers not to because they would not be able to give that child enough nourishment, toys, education, and attention. In otherwords, they prefer the higher quality child.
So as we got wealthier, we have preferred to substitute the number of children for higher quality children. Yet, in most developed nations poor families have more children than wealthy families. Why is this?
• There are a few explanations. First is that poor and wealthy families may face different prices. Since there is typically geographic separation between classes, particularly between urban and rural areas, it could be the case that in rural areas where food and housing are cheaper, the cost of having another child is cheaper. If the price of children falls, the quantity should increase. This will be magnified if, as in many rural communities, children in rural families contribute productively to the family’s income at younger ages, effectively lower the price of children for poor, rural parents.
Second, it is also true that an increase in an individual’s wage rate increases the value of their time. Time spent with children is one of the largest costs that parents pay when they have more children, thus an increase in the wage rate may increase the cost of having more children as well. The parent may substitute in the direction of having more educated children as well.
Finally, even if the other effects don’t hold to be true, the parent may elect to have higher-quality, better educated children when his or her income rises, even if other prices remain constant. As a property of convex preferences, parents will optimize when they invest equally in all children (since we assume they are identical). Thus, when the parent invests more in the quality of children, they invest more in the quality of every child. Since this creates a budget constraint that is itself convex, not linear the decision to invest more in a child’s human capital requires that parents do the same for each child and effectively raises the price of children.
This convex budget constraint is important: The number of children affects the price of children. IF the price of children was constant, having one child fewer would save you the cost of his education. If the price of children increases, you would want to substitute toward having fewer children of greater quality. But there is also a second order effect: having higher quality children raises the cost of having children again, since you must improve the human capital of all your children. This further encourages you to reduce the number of children you have.
The revelation about preferences, that humans trade quality for quantity, seems to come in the face of evolutionary theory, which suggests that most species are interested only in maximizing the quantity of their offspring. Over time, the people with preferences that populate the earth become "us." This is why we like sex. But why do we worry about having too many children? (it's interesting to realize that aside from having children out of wedlock or at an age when it was dangerous to the mother, or when people were afraid their child wouldn't survive, there was never concern for having too many kids, or that kids might 'accidentally' result from sex. It is only now that we have to be concerned about how much time and resources we can give to each child to increase their happiness that we are worried about having too many children).
I have two thoughs on this: First, in some basic level, the quantity quality trade-off increseas survivorship, but this is surely a very basic level, a Malthusian level. Second, preferences about these trade-offs were unimportant for most of human history, so natural selection has not impacted our sentiments. This feels like a bad argument...
posted by Walter at
11:03 PM
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